Principal contracts
The PPA, the dispatch agreement, and the operations and maintenance (O&M) agreement
were formally signed with the Power Bureau in April 1998, demonstrating that the sponsors
had been able to bridge the requirements of the Chinese power industry and those of the inter-
national sponsors and lenders.
Power Purchase Agreement
The Power Bureau is to purchase the plant’s electrical output under the 20-year PPA. The
original draft of the PPA, proposed by the sponsors in 1993 when negotiations began, was the
Bureau’s first exposure to an international-standard document. According to Wigmore and
Woo of Milbank, Tweed, the Bureau’s concerns about the document’s length and drafting
style initially overshadowed any substantive discussion of its commercial terms. Then,
between 1993 and 1997, the Bureau developed new ideas as it negotiated with other power
project sponsors. At one point the Bureau presented its own approach to a contract, leading
to what Wigmore and Woo describe as a classic battle of the forms. The Bureau’s draft reflect-
ed a Chinese approach to written agreements: it was shorter, and the language was more open-
ended and ambiguous. The final agreement drew from both the sponsors’ English drafts,
translated into Chinese, and the Bureau’s Chinese drafts, translated into English. As with
Laibin B, many of the project agreements have equally binding English and Chinese versions.
The dual-language negotiation and documentation added considerable complexity and cost to
the project.
One of the most important issues that the project sponsors faced was how to be assured
of receiving sufficient revenues. In their opinion, recent tariff agreements for other Chinese
power projects had lacked sufficient detail and left too much discretion to local pricing
authorities in the annual tariff review process. The sponsors were determined to negotiate a
more detailed tariff protocol that would include an adjustment mechanism for interim fluctu-
ations in various cost components, thus minimising subjectivity and disputes when electrici-
ty prices were reset each year. They also negotiated a foreign-exchange indexation
mechanism, providing comfort to foreign lenders that had suffered recent bad experiences
with Indonesian and Thai borrowers.
Engineering, procurement and construction contracts
Bechtel Power and its affiliates built the plant according to a turnkey engineering, procure-
ment and construction (EPC) arrangement that embodied offshore design and engineering
contracts, and onshore construction contracts.
Fuel supply and transportation contract
PT Kaltim Prima Coal of Indonesia committed itself to supplying and transporting coal to the
power plant under a long-term supply and transportation contract.
Operations and maintenance agreement
Under an innovative 20-year O&M contract the Power Bureau and its technical staff are to
POWER PLANT